AUDIT PROCEDURES AND CHECKLISTS

AUDIT PROCEDURES AND CHECKLISTS

Agenda Independence Planning the audit Learning the operations Internal control checklist Audit procedures

Independence Maintain a high degree of integrity, objectivity and independence Chief function is to serve the best interests of the municipality Conduct the audit to the best of your ability Avoid any conflict of interest Respect and protect privileged information you may have access to

Planning the Audit Approaches to the Audit Preliminary review Document procedures Review internal control Perform test procedures Prepare reports

Planning the Audit Preliminary Review Review financial reports included in prior year town report Review current year reports prepared by town officers Have there been any significant changes in operations since the last audit? Are there external factors that may have impacted the town s financial results?

Planning the Audit Document Procedures Which officer(s) and employee(s) perform financial operations? Who is responsible for billing and collection of taxes and other revenues? Who is responsible for authorizing disbursements? What reviews and reconciliations are being performed?

Planning the Audit Review Internal Control Analyze procedures to assess possible risks Inquire about any compensating controls Complete internal control checklists Determine how results of review may impact audit procedures Prepare recommendations for improvements

Planning the Audit Perform Test Procedures Use checklists General procedures Account specific procedures

Planning the Audit Prepare Reports Objectives of the audit Procedures performed Conclusion about fair representation of officials financial reports Findings and recommendations

Learning the Operations Billing and collection of taxes and other receivables General cash receipts Purchasing and payment of accounts payable Payment of payroll and maintenance of leave time records Maintenance of general ledger Reconciliations Financial reporting

Learning the Operations Billing and Collection of Taxes and Receivables Changes in grand list valuation Preparation of tax bills Adjustments to grand list and changes in taxes Reconciliation of current and delinquent taxes Other receivables billing and collection

Learning the Operations General Cash Receipts Who is authorized to collect money? What documentation is maintained for receipts? Who reconciles the information? How are transactions recorded in the accounting records? Internal control policies

Learning the Operations Purchasing and Payment of Accounts Payable Is there a purchasing policy? Who can authorize purchases and approve payment? What procedures are in place to review authorization, receiving and approval? Internal control policies

Learning the Operations Payroll and Leave Time Records Approval of time sheets Preparation and approval of payroll Payment of payroll taxes and other benefits and preparation of related returns/reports Maintenance of leave time records and other payroll records

Learning the Operations Maintenance of General Ledger Posting transactions to the general ledger authorization, approval, review Adjusting journal entries authorization, approval, review Report preparation

Learning the Operations - Reconciliations Reconciliation of accounts Cash Taxes receivable Other receivables Accounts payable Payroll liabilities

Learning the Operations Financial Reporting Internal reports Transaction reports Reconciliations External reports Financial position Results of operations Details of account balances

Internal Control Checklist VLCT Internal Control Handbook Review of best practices and completion of checklist Submit recommendations for improvement

Audit Procedures Checklist Balance sheet accounts Petty cash Checking and savings accounts Investments Receivables Capital assets Payables

Audit Procedures Checklist Income statement accounts Tax revenues General revenues Payroll disbursements General disbursements

Audit Procedures Petty Cash Count petty cash fund(s) Reconcile to balance in general ledger Test a sample of reimbursements to fund

ANYTOWN, VERMONT PETTY CASH RECONCILIATION JUNE 30, 20XX Petty Cash Summary Administration $ 25.00 Town Clerk 150.00 Public works 50.00 *** Public safety 75.00 Recreation 50.00 Total Petty Cash $ 350.00 Petty Cash Test - Public Works Cash on hand $ 22.30 Receipts Bond Auto Parts - oil filter 14.95 Anytown Post Office - postage for return 12.75 Total receipts 27.70 Total Petty Cash $ 50.00 ***

Audit Procedures Cash Reconciliation Prepare proof of cash End of year and randomly selected month(s) Trace deposits and expenditures back to cash records Review other reconciling items Review transfers between accounts Verify year end balances

ANYTOWN, VERMONT PROOF OF CASH JUNE 30, 20XX Balance Balance Beginning Receipts Disbursements End Balance per Bank Checking account $ 803,442.43 $ 469,451.12 $ (302,477.88) $ 970,415.67 Deposits in transit Beginning of month 4,578.25 (4,578.25) - End of month 6,712.68 6,712.68 Outstanding checks Beginning of month (67,841.22) 67,841.22 - End of month (83,559.80) (83,559.80) Other reconciling items Deposit corrections 0.10 (0.10) - NSF checks in transit 25.00 (45.00) 40.00 20.00 Balance per Books $ 740,204.56 $ 471,540.45 $ (318,156.46) $ 893,588.55

ANYTOWN, VERMONT PROOF OF CASH JUNE 30, 20XX Balance Balance Beginning Receipts Disbursements End Book Activity Cash Receipts Property taxes $ 67,458.12 Utility receipts 16,877.21 Other cash receipts 387,126.87 Cash Disbursements Accounts payable (215,674.33) Payroll (102,457.58) Other Activity Interest earnings 78.25 Bank fees (24.55) Total Book Activity $ 471,540.45 $ (318,156.46) Difference $ - $ -

Audit Procedures Cash Activity Receipts journal Trace account totals to general ledger and trial balance Trace amounts to subsidiary ledgers Examine supporting documentation

Audit Procedures Cash Activity Disbursements journal Trace account totals to general ledger and trial balance Trace amounts to invoices Trace amounts to signed orders View cancelled checks

Audit Procedures - Investments Review transaction reports Trace activity to general ledger Verify year end balances

Audit Procedures Taxes Receivable Prepare tax reconciliation Recalculate penalty and interest amounts Compare collections to cash receipts journal Verify abatements Co-ordinate with tax revenue test

ANYTOWN, VERMONT PROPERTY TAXES RECEIVABLE JUNE 30, 20xx Taxes Interest Total Balance, beginning of month $ 487,125.66 $ 29,874.24 $ 516,999.90 Current month activity Tax adjustments (1,478.25) (1,478.25) Interest added 4,258.11 4,258.11 Interest abated (89.25) (89.25) Collections (287,144.25) (14,877.11) (302,021.36) Balance, end of month $ 198,503.16 $ 19,165.99 $ 217,669.15

ANYTOWN, VERMONT DELINQUENT TAX RECONCILIATION FOR THE YEAR ENDED JUNE 30, 20xx Taxes Interest Penalty Fees Total Balance, July 1 $ 75,877.25 $ 7,255.77 $ 4,874.22 $ 100.00 $ 88,107.24 Activity Delinquent taxes from collector 198,503.16 19,165.99 217,669.15 Delinquent penalties & interest added 1,985.03 15,880.25 17,865.28 Interest and fees added 11,256.55 750.00 12,006.55 Abatements (4,788.22) (47.88) (383.06) (5,219.16) Collections (196,692.70) (31,175.67) (15,708.25) (800.00) (244,376.62) Balance, June 30 $ 72,899.49 $ 8,439.79 $ 4,663.16 $ 50.00 $ 86,052.44

Audit Checklist Other Receivables Review schedule of other receivables and compare to supporting detail Review subsequent receipts for omitted items Treatment of grant receivables

Audit Procedures Capital Assets Complete or review inventory of capital assets Review documentation for acquisitions and disposals Review disbursements for unrecorded assets Review insurance coverages

Audit Procedures Payables Accounts payable Review listing and compare to invoices Search subsequent expenditures for unrecorded payables Search for retainage amounts on long-term contracts Payroll liabilities Trace liabilities to tax returns Review subsequent expenditures for payment Co-ordinate with payroll review Other long term debt Review debt activity schedule Trace proceeds of new debt issued to receipts journal Review documentation of principal and interest payments

Audit Procedures Tax Revenues Reconciliation of grand list Authorization of changes to grand list Review of permits and land transfer records Changes to grand list and taxes due Lister changes BCA changes State changes

Audit Procedures Tax Revenues Recalculate tax amounts billed Trace values to Form 411 Trace tax rate to select board minutes Verify adjustments Verify approval for abatements Trace payments to cash receipts journal Trace delinquent amount to delinquent taxes receivable

ANYTOWN, VERMONT TAX RECONCILIATION JUNE 30, 20XX Homestead Non-resident Local Municipal Education Education Agreement Total Taxes to account for Grand List $ 8,757,279.55 $ 4,373,507.57 $ 3,584,268.38 $ 8,757,279.55 Tax rate 0.3281 1.1361 1.3125 0.0049 Taxes as calculated 2,873,263.42 4,968,741.95 4,704,352.25 42,910.67 12,589,268.29 Rounding Adjustment (47.59) 0.28 1.50 0.30 (45.51) Taxes billed $ 2,873,215.83 $ 4,968,742.23 $ 4,704,353.75 $ 42,910.97 $ 12,589,222.78 Taxes accounted for Taxes collected $ 12,258,144.25 Tax adjustments Grand list corrections 4,785.22 Abatements (2,577.22) Small balance adjustments (24.55) Overpayment to prepaid 4,788.25 To delinquent collector 324,106.83 Total accounted for $ 12,589,222.78 Variance $ (0.00)

Audit Procedures General Revenues Town Clerk fees recalculate revenues based on activities State payment report trace payment amounts to cash receipts journal (town payment reports - http://finance.vermont.gov/town_reports Compare actual revenues to budgeted and prior year amounts for variances

Audit Procedures Payroll Disbursements Prepare payroll summary by quarter Trace amounts to tax returns Reconcile totals to general ledger Trace random payroll Verify hours and rate of pay Recalculate amounts Trace amounts to warrant and general ledger

ANYTOWN, VERMONT PAYROLL RECONCILIATION FOR THE YEAR ENDED JUNE 30, 20XX September December March June Total FIT wages Gross payroll $ 250,203.34 $ 198,043.63 $ 157,466.38 $ 139,920.53 $ 745,633.88 Adjustments to taxable wages Flexible spending account (1,710.21) (1,541.22) (1,455.87) (1,784.22) (6,491.52) Retirement contributions (13,920.42) (11,352.80) (12,386.48) (11,434.87) (49,094.57) FIT Taxable $ 234,572.71 $ 185,149.61 $ 143,624.03 $ 126,701.44 $ 690,047.79 FICA/Medicare wages Gross payroll $ 250,203.34 $ 198,043.63 $ 157,466.38 $ 139,920.53 $ 745,633.88 Adjustments to FICA/Medicare wages Flexible spending account (1,710.21) (1,541.22) (1,455.87) (1,784.22) (6,491.52) FICA/Medicare taxable $ 248,493.13 $ 196,502.41 $ 156,010.51 $ 138,136.31 $ 739,142.36 Gross payroll reconciliation Administration $ 258,576.17 Public safety 24,744.25 Public works 417,455.22 Recreation 9,877.25 Planning and development 29,744.25 Library 5,236.74 Total payroll $ 745,633.88

Audit Procedures Checklist General Disbursements Compare actual expenditures to budgeted and prior year amounts for variances Trace sample of expenditures to supporting documentation and verify information Examine large expenditures

Audit Procedures Financial Statements Trace amounts to general ledger or journals Verify math Are all financial statements included?

Questions?